Re: "pizazzy" exchange rates

["RICHARD P.F. HOLT" <holtri@xxxxxxxxxxxxx>]

Referring to the Mundell-Fleming model, the policy effects of the model
are dependent upon whether you have fixed or floating exchange rates.
Since in the US we follow a model of floating exchange rates, monetary
expansion will lead to a lowering of the exchange rate, increase in
exports and higher national income. If you follow a model of fixed
exchange rates then monetary expansion has no effect and you must
rely on fiscal expansion or import restrictions. I'm wondering if this
is where the rub is. Most European countries are part of the European
Monetary System where the monetary policies of different countries
are sensitive to keeping their curriences within bands of fix exchange
rates. So you have two different exchange rate policies, one my the US
and another by Europeans, that respond to government policies in different
ways.
-Ric Holt
e-mail: Holtri@xxxxxxxxxxxxx